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Both the regulatory and commercial processes are on track for the controversial Keystone XL oil pipeline linking western Canadian and U.S. Upper Midwest supply sources to refineries in the Gulf of Mexico (GOM) region, TransCanada CEO Russ Girling told financial analysts Tuesday on a conference call. Under questioning, however, he admitted delays could sour current support the line enjoys from major shippers and refiners on both sides of the international border.

With the latest environmental impact statement (EIS) released in August confirming two earlier assessments, Girling said the 1,700-mile pipeline project is verified as "having no significant impact" on the environment. He called the EIS review "by far the most exhaustive and detailed analysis ever conducted for a pipeline in the United States."

Even with this milestone, Keystone faces potential litigation to halt it in Nebraska, and further delays at the U.S. State Department in making a final decision on whether the project is in the national interest of the United States. The combination of legal and State Department delays could cause shippers and refiners that now have the bulk of the 1.3 bbl/d capacity under firm contract to seek options to the pipeline.

"The Department of State [alone] received more than 300,000 public comments on this project," said Girling, adding that there has been a lot of "misinformation" spread on the project and some requests for route changes [in Nebraska] come from environmental organizations that don't want to see a new crude oil pipeline built. "The State Department has said it expects to make a final decision on the project by the end of the year."

Backers of the project argue that added Canadian and U.S. domestic oil will allow the United States to displace current supplies set to run out that come from Mexico, the Middle East and Venezuela, and Keystone for the two-year construction period and beyond will create thousands of jobs. Girling estimated 13,000 pipeline construction jobs and another 7,000 manufacturing jobs in the pipe and related equipment industries would be created over the next two years.

"The facts are that contracts with refiners for Mexican and Venezuelan oil are set to expire and there will be a gap is supply that has to be filled with crude from some place," Girling said. "Keystone XL can fill that gap with Canadian and U.S. oil." He said 25% of the pipeline's capacity has been dedicated for bringing U.S. oil (Bakken, Cushing in Oklahoma) to U.S. refiners.

While TransCanada executives contend the pipeline can still be in service by the second half of 2013, Girling and others outlined serious resistance ongoing in Nebraska, whose unicameral state legislature began a special session Tuesday aimed at passing legislation to prevent the proposed routing of the pipeline project in the state by the end of next week.

"Even if legislation is proposed, I am not sure it will be voted on and implemented," said Girling, noting it is unclear if proposed state legislation on routing at this point in time would be "legal and constitutional." He called the legal questions a "very difficult, high-bar hurdle" for the project's opponents, including the Sierra Club, to get over.

The concerns being raised in the Sandhill region of Nebraska center on contamination risks to local water supplies. "The governor of Nebraska has said it is his goal to have everything wrapped up before Thanksgiving," according to Alex Pourbaix, TransCanada's president for energy/oil pipelines. "There are a number of competing bills that have been proposed, and they all need to be debated in the natural resources committee.

"Given what I have seen coming out of Nebraska, it is not inconceivable that no bill will get out of committee on the state siting issue. We're obviously monitoring the situation very closely."

Opposition from anti-oil interests is expected to continue no matter what happens in Nebraska or in the State Department, TransCanada's executives said, noting that they "fully expect" to get an approval to more forward by the end of the year and start initial construction as early as possible next year. "I would fully expect as we saw in the original [existing] Keystone project there will be objections in lawsuits, but what we saw in the past is that those lawsuits did not hold up construction," Girling said.

In response to a question of how long the existing contracted parties can be held to their deals, Pourbaix said the contracts have sunset provisions, but he said TransCanada is "in a position where none of those will kick in...we have extended some of the sunset provisions, and we do not expect our shippers to rely on those sunset provisions any time in the near future."

However, Girling said refiners and shippers have said they need to have crude flowing by a certain time, and if "they don't think they are going to get it by a time certain, they are going to look elsewhere. There is no other pipeline alternatives, so they would be looking at offshore crude, tankers moving down the Mississippi River.

"They are committed to our project as long as they can see that there is a logical way of getting to a decision, and that the decision will be favorable. If they don't see that happening, they will put other options in place."

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